Oil firms float finished fuel products on Arabian Sea as demand slumps

The decline in demand has forced oil companies to run refineries at lower utilisation levels
US oil futures touched an unprecedented negative pricing on Monday over low demand and scarce storage.

Closer home, Indian refiners, too, are facing a similar issue with their refined products.  This has forced some like Bharat Petroleum Corporation (BPCL) to float some products in the Arabian Sea. Officials said products have been stored in tanker vessels in the past. This time this was due to a large-scale slump in demand and onshore tankage space being optimally utilised.  “We are floating products like motor spirit and reformates,” said a senior executive from BPCL.

The products are being used in chartered ships floating in the Arabian Sea. "They will either be exported or be brought back for internal consumption, depending on demand,” he added.  The executive said the volumes of products that are in floating storage is low at a few thousand tonnes.

Since the nationwide lockdown was announced on March 24, India’s fuel consumption has taken a major hit. Most industry executives said the demand for petrol and diesel is one-third of the usual consumption.

The demand for aviation turbine fuel, due to suspension of international and domestic flights, is near negligible. The decline in demand has forced oil companies to run refineries at lower utilisation levels. “Right now, the utilisation for refineries is at 50-60 per cent,” the executive quoted earlier said.

Industry executives remain hopeful that with partial work resumption by industry and agriculture sector, demand for petrol and diesel will improve.  “We should see the trend change in the next four-five days. If that does not happen, refineries will need to cut utilisation further,” said the executive.

At an industry level, it may not be feasible for some refineries to run below 50-per cent utilisation. The BPCL executive said floating storage is not expensive when compared to costs involved in shutting down a refinery. “Not all products are being floated. Those which have demand are being produced and sold, and the ones with low demand are being stored. This helps keep the refinery running.”

He added that oil firms in the past have used floating storage for various reasons, like contingencies like pipeline issues and fire accidents.

In 2017, BPCL had a blaze at its tank facility on Butcher Island, off Mumbai coast. The oil refiner opted to use floating storage to store products to ensure refinery functioning was not disrupted.

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